The Importance of Keeping Crypto Crowdsales Accountable
[/b]Daniel Cawrey (@danielcawrey) | Published on November 29, 2014 at 15:43 GMT
For many entrepreneurs, one of the most compelling use cases of blockchain technology is the potential for it to enable new marketplaces that remove traditional hurdles associated with investing and crowdfunding.
The growing number of public crowdsales has been widely covered as of late. With these crowdsales, companies sell a branded bitcoin fork as a way to finance the early development of cryptocurrency-related projects. The popularity of many of the early crowdsales has sparked a conversation about where the burden of consumer protection lies.
It appears that burden, at least for the moment, falls on the consumer to do their own analysis of a project’s legitimacy, team, technology and likelihood of success.
Despite the current situation, it is inevitable that this burden will, in some form, eventually land on the companies or the platforms that support them.
Legal concerns
Legal questions regarding cryptocurrency crowdsales are uncertain right now. To avoid classification as a security, tokens sold to buyers are often said to represent future access to a company’s technology.
The motivation to participate in cryptoequity crowdsales varies from investor to investor. While some possess a genuine interest in advancing a crowdsale-fueled through their support, other investors simply aim to buy low in order to sell for a higher price.
Yet the nature of how all of these tokens are eventually classified remains uncertain for the time being.
What is often predictable about an industry that lacks legal and regulatory clarity, however, is that the participants in that industry may be tempted to take minimal steps to protect themselves from potential liability. This is not surprising, as establishing measures and policies to protect consumers costs money and affects the bottom line.
Such actions are shortsighted. Regulation, particularly in the financial services industry, is generally a reaction to current problems in the market.
Rules are written to address problems that exist. Therefore, how an industry conducts business today has a direct result on how that industry will be regulated and required to conduct business in the future.
Prepaid cards
The prepaid card industry is a good example of how this battle between innovators and regulators has played out in the past.
Prepaid debit cards are a fast-growing form of non-cash payment. For years, particularly in the early to mid-2000s, prepaid card programs were largely unregulated and issuers were able to essentially write their own rules.
Card programs imposed fee structures that punished cardholders for inactivity, charged them each time the card was used and allowed for premature expiration if the card was not used regularly.
These fees were included in card agreements that accompanied the physical cards. However, the terms were often printed on inside packaging and not accessible to a consumer prior to purchase.
As the prepaid card market developed, legislators took notice of the developing industry problems and began crafting laws to address them.
A formal reaction came in 2009 with the passing of The Credit Card Accountability Responsibility and Disclosure (CARD) Act.
The CARD Act restricted dormancy or inactivity fees and prohibited expiration dates of less than five years. The fees imposed also were required to be conspicuously stated for the consumer to easily understand.
Read more:
https://www.coindesk.com/importance-keeping-crypto-crowdsales-accountable/
